Government’s plan to solve housing crisis ‘likely to fail’

The Government’s plan to solve the housing crisis by accelerating the supply is likely to fail and lead only to more young people being priced out of the market, a new study has warned.

Dublin architect Mel Reynolds said research showed that, over the last 40 years, increasing the supply of new private sector homes has never once led to a reduction in property prices here.

Even at the height of the State’s boom time build in 2006, when a record 92,000 homes were built, property prices rose by 14 per cent.

Mr Reynolds, who has gathered Central Statistics Office data for both housing completions and house prices between 1975 and 2015, said the Government's Rebuilding Ireland strategy was based on a misguided assumption that boosting supply would make property more affordable.

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His comments come as Moody’s warn in a new report on Thursday that a lack of housing could limit the upside for Ireland under a Brexit scenario.

“Ireland is well placed to benefit from at least part of the redirection of investment from the City of London,” it said, but added: “While such FDI inflows could indeed compensate for Brexit’s negative trade impact to some extent, we believe that Ireland faces important supply constraints, particularly with regards to residential housing, which could make it difficult to lift the full potential for FDI.”

Normal laws

Mr Reynolds said the data showed the normal laws of supply and demand did not apply to property, and that it was price that led supply, not the other way around. This explains why residential construction all but dried up after the crash and is only beginning to recover in tandem with a recovery in prices, he said.

It is also consistent with the notion that rising prices and rents make commercial development more viable.

Mr Reynolds said the Government’s strategy, which relies almost entirely on the private sector to build new homes, was only likely to bolster the supply of what he described as “executive homes” or those in the € 350,000 plus bracket.

This was because land values, construction costs and VAT had pushed the cost of development in Dublin to a level that was too costly for those on average incomes.

His assertion is supported by the Society of Chartered Surveyors Ireland (SCSI) which last year put the cost of developing a typical three-bed semi-detached house in Dublin at € 330,493.

This was € 36,000 more than a couple earning a combined salary of € 74,000 can afford, after having saved a deposit of € 35,000.